--- Original Message -----
Sent: Thursday, April 08, 2004 10:02
AM
Subject: Re: [sharechat] Theories for
Allan Potts
Hi Allan,
I am familiar with the fundamentals and there is
no FA reason for MUL to drop in price. I have also been tracking the intraday
closely over about 3 weeks or so which is very time consuming but also very
enlightening.
There has been a clearly evident strategy to
reduce the SP and I theorize some have seen an opportunity to profit from
short selling or day/short-term trading though I believe a majority of
day/short-term traders have begun to lose interest (evidenced in lower
volumes).
From what I've seen, I believe we're very close
to the end of this narrow trading band and much depends on the success or
otherwise of any strategies at play.
The direction (up or down) therefore, is going to
be decided by the heavier weighting, i.e.; those buying MUL's med to long term
potential V strategy in play (a. buy at a cheaper price OR b. short-sell OR
both)
Philosophically speaking, a strategy to push a
price down causes short-term damage to a share's value. A strategy to push a
price down through a support line causes long-term
damage to a share's value.
A) If an entity is pushing the MUL price down
(for the purpose of picking up MUL cheaper) they are likely to shoot
themselves in the foot if they succeed in pushing through the support as this
'heavy handed' strategy is likely to create a deeper and far longer negative
influence on their investment as well as creating their own worst enemy - the
investor who has been burnt by the strategy.
Result - they would be able to pick up all the
MUL they want at the price they're targeting but are likely to find they have
negatively over-influenced the value of the stock (devalued the stock) to the
point that the negative repercussion will reverberate for quite some time to
come - catch 22.
B) If an entity is pushing the price down through
'short selling' for short-term profit only, i.e.; has no interest in MUL as a
growth stock; they are unlikely to have any concern for short or long-term
damage to the stock's value (or shareholders).
So, my theory is that if there is a continued
push toward breaching support, the likeliest over-riding strategy is one of
'short selling'.
This means an SP rise for MUL would likely
trigger an upward rally of nice proportions as short sellers would have to
repurchase all the MUL shares they 'borrowed' and must 'repay' to ensure they
limit erosion of their profits.
Interesting times.
Thanks for your input Allan. How are my
conspiracy theories progressing?
Regards,
Cris
----- Original Message -----
Sent: Thursday, March 25, 2004 3:37
PM
Subject: [sharechat] Short selling
answer to Cris.
Hi Cris,
In the US regular stocks can only be sold
short on an uptick in price. This is an attempt to slow the downward
spiral you allude to. This however, does not stop people from shorting
and shorting and shorting and driving the stock down as there will be many
downticks in between their shorts.
The first step to defeating shorts
that are driving down a fundamentally good stock is to keep track of the
total volume of shares sold short. As an example, (numbers made up for
simplicity) let's say there is a float of 15,000,000 shares with another
5,000,000 closely held by people who are just not going to sell. (Family,
trust funds etc.) Some guys decide to short the stock at say $100.00
per share, drive down the price to $50.00 and buy back at that price.
(covering their shorts) As the short position builds, you realize
what's going on and keep track of the number of shares sold short.
Over here they are published regularly, so it's relatively easy to keep
tally on them. You learn that they have sold 10,000,000 shares short.
This represents 2/3 of the float and 50% of the totality of shares
issued. The price of your fundamentally solid stock is now say $60.00,
but they're still trying to drive it to $50.00 and you know it's worth
$100.00.
Buy as much as you, your family and friends can possibly
afford and go to chat sites letting everyone one who will listen know that
the shorts appear to be beating the price of shares down in order
to profit from their short sales. Result "A SHORT
SQUEEZE". Since your purchases will be driving the price of the stock
up and the shorts are committed to cover their shorts at some point the rise
in value will be tolerated at first, but as it nears say $80.00 and they see
their profits evaporating, they will panic and try to get out. To get
out, they have to buy, which further drives the price up and adds to their
losses.
Now this is a simple example to illustrate the basic
principal. It also explains why bear market rallies are so quick and
violent. It's the shorts attempting to exit their positions.
Actually the reverse of a panic selling crash. Over here there are services
that continually watch for large short positions building in stocks that are
sound and increasing in price. The higher the short position the
better, because it guarantees a Hugh reservoir of buyers to further push
prices up when the squeeze starts. Actually it's fun to watch when
you've taken the long position and watch the stock jump 10 to 40% in one
day.
On the other hand when you've shorted a stock because you think
it's a dog and along comes a buyout offer 25% higher than the
market price -- you get killed!!!! I've been through both
situations. Hope the illustration of the general principal helps -- on
the other hand you may already know all this. I pass it along
because I know that short selling is not as widespread in the NZ and Aussie
markets as it is here, where just about anyone with a margin account can
short a stock that is available to be shorted.
Cheers, GO NAIL
THOSE
SHORTS!!!!
Allan
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